Turnarounds
Data miner
How Stephen Lilienthal got CNA Financial Corp. back on track by giving the right information to the right team
By Mike Cottrill
Smart Business Chicago | March 2008
Stephen W. Lilienthal grew up getting used to having the weight
of a company on his back.
Working in his father’s delicatessen in New York City, one of his
jobs was to take the recyclables — then mostly glass bottles —
up the stairs to the street. The bags often weighed nearly as
much as young Lilienthal did, but he realized that if he could just
get ahold of the bag and get some momentum going, he’d be fine.
When Lilienthal took over as chairman and CEO of CNA
Financial Corp. in 2002, another heavy load awaited him: The
business and personal insurance giant was losing ground fast. By
2003, the company had a net loss of $1.4 billion, and Lilienthal
knew that getting his arms around the problems was going to
take several years.
CNA, an umbrella organization for a wide range of insurance
providers, had $12.3 billion in revenue in ’02 but was segmented into
different organizations with different data. A truth that just hadn’t
been processed among the nearly 10,000 employees was that the
company was in a nosedive.
“The hardest thing was getting recognition of the issues at hand,”
Lilienthal says. “There was not a common acceptance that the place
was struggling and had confronted some very serious and life-threatening issues.”
So he began taking those first momentum-building steps. He headed up the project to collect all the data to see the company’s mis-steps, and he began promoting and hiring the smartest, most direct
people he could find. Meanwhile, he tied the data coming in to uni-lateral goals for the company by making CNA’s success equal
employee compensation.
Gather and communicate the facts
To a fact-driven leader like Lilienthal, there are two simple steps
to starting a turnaround: You acquire data, and you clearly communicate the problems to employees.
“You have to say you’re struggling,” he says. “It’s that acceptance,
then it’s understanding what success is, what are the metrics that
we’ll be using, and what’s the data that we’re going to need?”
To say you’re collecting data is one thing, but Lilienthal says you
have to realize that it’s a big task, and you will need to put things
together incrementally and make changes regularly as you go forward.
“My project for the first two or three years was building a system
that would let me get at the data and refine it, and we planned it out
over a two- or three-year period so the refinements would come at an
incremental basis,” he says. “It’s not like we could shut down the
place for a couple of years while we rebuilt; we were operating a $12
billion company on the fly and trying to make sure we had something left after we did all of our re-engineering.”
Not only does getting data take time, but you have to realize that
some of the old data may point you in the wrong direction. At CNA,
the data from one portion of the business wasn’t always qualified the
same as another portion.
“Data quality was a huge issue because when you silo an organization to the extent that CNA had, it fractured the database and
made it difficult to get data in a consistent fashion and deliver it in a
way that I could really get my arms around,” he says.
By making redefining the data job No. 1, Lilienthal spent vast
amounts of time digging in and seeing some big problems at CNA.
Though the truths were often a bit scary, he says negative data can
be paramount during a turnaround.
“In terms of the ability to have a strategic vision and to develop a plan,
that will drive the organization to the desired outcome,” he says.
As data came in, Lilienthal and his senior leaders released it
through every communication process possible. It explained where
the company was off-balance and helped justify future moves while
giving employees a new standard for success.
“We release things and make people aware of any changes,” he
says. “The less surprises we have, the more stable, motivated and
focused the employees are in terms of the task at hand rather than
the noise that surrounds it.”
The more CNA could get the information out, the more it helped
employees get behind the turnaround. A new vision was created,
and employees got a better understanding of how what they were
doing would rebuild the company.
“The concept of leadership very much gets focused on one person
having a great idea and yelling, ‘Charge!’ and often not having anybody to go with them,” Lilienthal says. “We expect our leaders to
communicate on a regular basis whether people are meeting the
objectives, and that’s fact-based and quantitatively based.
“What differentiates an organization in terms of how it’s able to
motivate, attract and retain people is how you do it. You can have
hard challenges and act in a humane way and achieve more because
people are not afraid. They understand fact-based expectations and
the consequences, but they’re not living in fear.”
Let smart people do the work
As data was coming in, Lilienthal used another lesson he learned
at his dad’s deli.
“My dad’s message to me was, ‘You’re never as smart as you could
be, and you’re never going to be smart enough,’ so if you can recognize that, then you are unafraid to surround yourself with smart people who will help you get it done,” he says.
With data being released incrementally, Lilienthal began to apply
that to CNA. Whenever it became time to bring in or promote a new
leader, he looked for someone smart who could learn from data and
communicate it clearly.
“One of the reasons you absolutely have to have the smartest and
the best people is that smart people and experienced people can
operate with data that’s not perfect,” Lilienthal says. “You get people
who look at data and say, ‘I understand where this is leading and
what we need to do.’ That’s key because I couldn’t sit here and just
say I’m going to wave a wand over this technology and it’s all going
to be fixed in two weeks.”
To make sure he was getting smart people, Lilienthal and his senior team reworked the way they hired. First, CNA expanded interviews to feature several leaders — including those from other
departments — talking to candidates to see if the person displayed
the ability to work with other teams.
Beyond that, an emphasis was placed on patience. Lilienthal
worked his way up the insurance chain from one chair to the next,
and he knows the industry smarts that come with logical progression.
“To get to senior levels within any organization, you need to understand the fundamentals,” he says. “In this day and age, people are
impatient, and a lot of companies take chances on people that
skipped one or several levels of experience. So you wind up with
compensation levels being out of whack and with a lot of variability
in performance because people skipped the fundamentals.”
Lilienthal says the final litmus test is letting the interviewee show
his or her smarts by describing clearly and without prodding how he
or she would be successful.
“We don’t tell them the expectations of the job, we give a broad-based description and I ask, ‘If you had the job tomorrow, what
would you do, how would you do it, and how would you structure
the organization?’” he says. “And then I shut up. The measure is
their ability to communicate in a very crisp and concise way exactly what is in their head, how they would do it, the people they
would hire and what the core functions are.
“Sometimes what you get is an inundation-type answer, where if
they keep talking long enough and say enough things, somewhere in
there is an answer. The people I want are direct, very focused, they
have the facts and maybe they’ve done it before. They express themselves well because if they can’t communicate, they can’t develop
followership — and if they can’t develop followership, nothing gets
done.”
The test for an employee’s intelligence may seem basic, but
Lilienthal says it’s often overlooked.
“You have to have A players,” he says. “If you lose a year in today’s
business world, that’s a generation. You lose two, and you can say
it’s over. Smart people equal smart business, and if you give them
good data and good solutions, you have a shot at winning. If you do
not have smart people, it does not matter what your product portfolio or data quality looks like — marginal people equal marginal
business.”
Tie employee efforts to compensation
Besides reconfiguring how data was collected and utilized,
Lilienthal made another blanket move that helped CNA’s turnaround
gain traction: He tied senior employees to the success of the company with compensation. That doesn’t mean you tie people to the
success of their department, but you make sure everyone is looking
out for the company as a whole.
“They have vertical responsibility, but they also have horizontal
responsibility to help all the other areas get better,” Lilienthal says.
“That means the finance department would have primary responsibility for financial functions but also have an ancillary responsibility
to help other departments if they need support.”
In order to get everyone thinking in that horizontal fashion, the compensation plans at CNA didn’t let any one department earn extra compensation if the company was struggling.
“Our compensation plans are skewed toward the success of the
company, not toward the success of a department,” he says. “If CNA
does well, everybody shares in it.”
It sounds basic enough, but Lilienthal says some employees have
a hard time grasping that one’s personal success doesn’t always
equal big benefits.
“People ask me, ‘Does that mean that if my staff department hits
their target that we’re not going to get compensated over and
above?’” he says. “And I say, ‘You’re absolutely right because it wasn’t good enough. Whatever you did didn’t work because the results
weren’t there for CNA.’”
The idea isn’t to punish your employees when the company struggles, but you have to make them recognize that there is an overall
business objective, and you make them care enough to help in any
way they can.
“You have to care about a place if you’re going to be part of a winning team,” he says. “Otherwise you’re just a robot, and robotic
behaviors ultimately fail because you wind up gravitating to the middle. And if you are in the middle, you are just dead meat — sharks
hit when you stop swimming, so you have to keep moving.
“If you take one of the guideposts that you use, compensation has to
be there. It is probably the simplest and crudest way to keep people
focused on the results of the organization, but it’s recognition of success or failure.”
Compensation doesn’t fill in all the gaps, but motivated employees
will do that on their own. At CNA, the new direction created by tying
compensation to success bred an atmosphere where employees
wanted to do more. CNA had a record year in 2006, posting $1.1 billion in net income on revenue of $10.4 billion.
“It’s not just about compensation; the organization starts to
achieve traction, and people like to be part of a winning team,” he
says. “As the company does better, and our reputation and financial
results start to push forward, people feel good. They feel that it’s a
good place to work, and they stay here despite being potentially
recruited away.”
HOW TO REACH: CNA Financial Corp., (312) 822-5000 or www.cna.com
